China economy

By Andy Rothman, Matthews International Capital Management

Statistics announced on Wednesday do much to challenge the view that sub-par Chinese consumer spending is to blame for the sluggish rebalancing of the world’s second largest economy away from an over-reliance on investment. For too long this opinion has obscured the crucial truth that China is actually host to the world’s best consumer story.

Real retail sales rose 10.7 per cent in June and 10.8 per cent in the first half of this year, compared to the year earlier period. The strong momentum of this spending springs from solid foundations, with real urban household disposable income rising 7.1 per cent, up from 6.5 per cent a year ago. Continue reading »

By Shaomin Li of Old Dominion University

Saturday evening at a concert hall parking lot, the cars move like sharks, hunting for a parking space. When they find one, some drive in head-on, while some make the effort to reverse.

Obviously, reversing in takes more time and effort than driving in head-on. But it makes it easier, quicker, and safer to exit. So we may conjecture that people who take the trouble to back their cars in demonstrate an ability to delay gratification: they are happy to invest more time and effort now to enjoy the fruits of their labour later. Continue reading »

It’s been three months since Ma Jun – sell-side economist and well-known China bull – quit the world of investment banking and moved from Deutsche Bank to the People’s Bank of China.

Now the German bank has found a replacement – poaching China bear Zhang Zhiwei from Nomura. With apparently rather divergent views on where the economy is heading, either Deutsche or Zhang is likely to be revising its forecasts pretty soon. Continue reading »

Banks intensified their squeeze on mortgage borrowers in China in June, contributing to another sharp decline in real estate sales for the month and ratcheting up the pressure on several city government finances.

Data collected by China Confidential, a research service on China at the Financial Times, showed that only 5 per cent of first time buyers were able to secure a mortgage below the benchmark interest rate. This compared with 8 per cent in May and 39 per cent in June 2013, according to China Confidential’s monthly survey of 300 real estate developer sales offices in 40 cities across the country. Continue reading »

Two of China’s stodgiest state-controlled entities locked horns this week as state broadcaster CCTV accused a major state bank of money laundering and violations of the country’s foreign exchange rules.

In a report aired on Wednesday, China Central Television claimed that Bank of China (BOC), the country’s fourth largest lender, was helping clients circumvent foreign exchange controls using a service called “Youhuitong,” a play on words that translates as “Preferential Transfer Channel.”

The incident highlights the many regulatory grey areas that have emerged as China has launched a slew of financial reform pilot programmes. Many such programmes take the form of broad guidelines, while detailed regulations appear much later, if at all. Continue reading »

If you’re an emerging market and there’s a geoeconomic grouping you’re looking for, you’ve got a few to choose from. In Asia there is Asean - ten countries in search of common ground. In Latin America there is Mercosur - five countries in search of common tariffs. And from the Atlantic west to the Black Sea there is Asia-Pacific Economic Co-operation – four adjectives in search of a noun.

But none of these has the distinction of having been a marketing campaign by Goldman Sachs got out of control. The Brics nations, apparently noticing a small clearing in the densely-thicketed field of international relations, seized on the designation to set up their own diplomatic process. The sixth leaders’ summit will take place next week in Fortaleza, Brazil, with the host nation hopefully performing better than at its other major international gathering.

 Continue reading »

By Liao Min, China Banking Regulatory Commission

Shadow banking is a risky business, for sure. That’s the reason why the Financial Times ran a recent series on shadow banking, with the first article investigating China. In China, shadow banking is a broad concern, given liquidity mismatches in the system, opaque asset quality and the fact that the end-users of such finance are often in the riskier sectors of the economy such as real estate and those struggling with over-capacity.

What’s worse, it has exposed traditional banks to increased wholesale funding and greater fragility. Therefore, Chinese banking regulators, in common with their global counterparts, are concerned about and eager to learn how the shadow banking sector is evolving and reshaping finance in China and around the world. Continue reading »

By Guonan Ma, Bruegel

Against a backdrop of weakening domestic demand, and in the slipstream of a major debate about whether Chinese monetary policy in the last year has been too restrictive, there have been definite signs of Chinese monetary loosening in recent weeks. This makes sense. Timely and measured monetary easing will support growth, facilitate structural rebalancing and underpin rapid economic reform.

There is little doubt that Chinese growth has been losing momentum. During the past few quarters there were clear signs of rising inventories, slumping property sales, producer price deflation, declining consumer price inflation, weakening corporate earnings, slowing investment and anaemic industrial production. Fortunately, private consumption is still holding up. Continue reading »

By Andrew Collier, Orient Capital Research

Beijing’s desire to pump up the Chinese economy is leading it into dangerous territory.

Although China has piled on debt, the country has been relatively cautious about one of the big areas that led to the U.S. financial crisis: leverage. It was the slicing and dicing of mortgages into digestible bite-sized chunks called derivatives that was a key contributor to the U.S. financial meltdown in 2007. Once they unwound, they threatened the banking system itself.

Until recently, China has avoided complicated derivatives and other forms of leverage. However, desperate to keep the economy from slumping, the Chinese reluctance to wander down the leverage path seems to have faded. Continue reading »

By Qu Hongbin, Co-Head of Asian Economic Research, HSBC

For many, China’s growth model, which has delivered average annual GDP growth of 10 per cent over the past three decades, simply looks wrong: a national savings rate of around 50 per cent is unheard of in a large, modern economy.

A typical diagnosis states that China invests too much and consumes too little. The prescription is “rebalancing” – moving the economy away from investment towards consumption-led growth. However, a consumption-led growth model has little in theory or evidence to support it. Continue reading »

By Nicholas Borst, Peterson Institute for International Economics

There has been a significant amount of buzz regarding the rapid growth of internet finance in China. The scope of internet financial products includes money market funds, insurance products, third-party payment platforms, peer-to-peer (P2P) lending, and other more exotic investment products. In other words, internet finance is springing up largely beyond the remit of the traditional banks.

The pace of growth has been rapid enough to inspire fear and resentment on the part of the banks even though the total amount of money invested in internet financial products is still small relative to the enormous size of the traditional financial sector. The emergence of internet finance in China raises several key questions: What is behind the growth of internet finance? What are the risks and benefits from investing in these products? And what will the impact be on the rest of the financial system? Continue reading »

More bad news for China’s property market. Not only is the People’s Daily quashing hopes for a real estate stimulus, but data from 42 of the country’s most significant cities is showing a declining trend for property sales in the first half of June.

Home sales from the 42 cities, monitored by China Confidential, fell 16 per cent in the first 15 days of the month from the same period in May. This followed some signs of recovery in May, when transactions rose 4 per cent month on month.

On a year on year basis, property unit sales fell 29 per cent, representing a deepening of the declining trend seen in May – when sales were down 14 per cent year on year – and in April, when sales were down 23 per cent. Continue reading »

By Michael Power of Investec Asset Management

MSCI has moved in mysterious ways, its wonders to perform… and again left Chinese stocks out of its global benchmark indices. At the same time, we learn that, after three years in index limbo, it will not add South Korea and Taiwan to the family of developed markets. These decisions have happened despite the fact that all three nations are among the world’s top 25 economies: China at number 2, Korea at 15 and Taiwan at 25. Continue reading »

With the benefit of hindsight it is always easy to identify the signs of an impending crisis.

Today it seems perfectly obvious that high-profile loss-making pet food websites will eventually go bust and that giving mortgages to people who cannot pay them back is not a sustainable business model.

Along with such leading indicators of looming disaster I would add another – the conversion of bearish commentators and economists into newly-minted optimists. Continue reading »

By Stephen Green, Standard Chartered Bank

Dangerous things can lurk in the shadows of a financial system. We know this because when the US banking system almost burnt down in 2008, the stuff in the shadows was the fire’s accelerant. The highly-leveraged, off-balance sheet vehicles loaded with securitised debt meant made the banking crisis were far worse than it would have otherwise been.

Knowing the problems that lurked in the US, the idea of shadow banking in China freaks people out. The sector seems to have grown fast, in an economy already known for its tendency for asset bubbles and bad lending. We have spent time poking around in the shadows. We believe that much of the fear is misplaced. Continue reading »